Thinking About Refinancing Your Investment Property Loan? Here’s What You Need to Know
If you’re not thrilled with the interest rate currently attached to your home or investment loan, exploring refinancing for a better deal might be a good idea. But remember that refinancing an investment property loan comes with its unique aspects. Here are five essential things to consider before you embark on refinancing your investment property loan to secure a more favourable arrangement.
1. The Costs of Refinancing
Although refinancing to a better rate can save you money in the long run, it might involve some initial expenses. There are various costs associated with refinancing, including application fees, discharge fees, settlement fees, mortgage registration fees, exit fees, and more.
Fortunately, refinancing to a lower rate tends to be cost-effective over time. You may recoup most, if not all, of these expenses within the first few years. Be aware, though, that interest rates for investor loans typically run slightly higher than those for owner-occupier loans.
2. Tax Deductions
One of the advantages of being a property investor is the potential for numerous tax deductions. When refinancing an investment loan, it’s worth knowing that you can sometimes claim tax deductions for borrowing costs and exit fees. It is highly recommended that you seek advice from a tax professional before proceeding with any action to help navigate this process.
3. Loan to Value Ratio (LVR)
During refinancing, your loan-to-value ratio (LVR) significantly impacts your equity and the perceived risk you pose to the lender. A high LVR may lead to a higher interest rate as the lender seeks to mitigate the risk. Investment loans typically come with stricter LVR requirements, and some lenders may even insist on an LVR of 75% or lower before allowing you to refinance.
4. Credit Rating
Your credit score plays a pivotal role in determining the interest rate for your loan. The higher your credit rating, the less risk you represent to the lender. Given the stringent lending restrictions on investment loans, investors need to pay particular attention to maintaining a good credit score.
It’s important to note that refinancing counts as a credit application and will appear on your credit report, potentially affecting your credit score. Lenders may become cautious about approving your applications if you refinance too frequently.
5. Proof of Income
Investors face more thorough scrutiny during the mortgage refinancing process compared to owner-occupiers. Expect to provide additional documentation as proof of income, including tax returns, salary slips, rental income records from the property, and more. When the property has been vacant, or income has been intermittent, some lenders might not consider rental income as part of your total income.
In conclusion, refinancing your investment property loan can be a strategic move to secure a better financial future. However, it’s crucial to be well-informed about the unique considerations involved in this process.
If you’re considering refinancing your investment property loan and need expert advice, don’t hesitate to contact us. Our team of experienced professionals can help guide you through the process and provide tailored solutions that align with your financial goals. Contact us today to schedule a consultation and take the first step towards securing a better financial future.
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
Although every effort has been made to verify the accuracy of the information contained on this page and on this website, C&N Accountants, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.